REITs soar on earnings

So far, this earnings season has made great strides in demonstrating that REITs are more than just income plays.  They are growing companies with full opportunity to participate in the strong economy.  Nearly every first quarter REIT report has been strong and well received by the market.  Let us focus on the reports from companies in 2CHYP.

Washington Prime Group (WPG) held its 2018 guidance which baffled the market in the face of the Bon-Ton bankruptcy.  It also guided for a maintained dividend.  This is the epitome of value investing as mere stability resulted in the stock rising double digits on Thursday and Friday combined.  So much negativity was priced in that their demonstration of resilience through the challenging environment was all it took to shock the market.  Some of the price action could be a short squeeze, but we will have to wait for the data to come out to confirm that idea.

Iron Mountain (IRM) floated the idea that they can raise rates on their storage business at a pace of 4% above inflation annually while only causing about 50 basis points of related churn.  This would be a huge margin improvement with the extra revenues going straight to the bottom line.  Further, IRM’s report demonstrated absolute volume growth in the legacy business which has been earmarked for shrinking by many pundits.

Kite Realty Group (KRG) continues to throw up positive same store NOI growth and healthy leasing spreads.  Along with very strong reports from SPG and WPG, the retail REITs have put some dents in the doom and gloom media narrative.  All three had strongly positive price moves following earnings.

The growth exemplified in these reports is particularly important right now with the 10 year treasury yield threatening to go above 3%.  It may enable the market to see them as more than dividend plays if FFO/share is growing at a nice clip.

While WPG had the biggest move on earnings, I was most impressed by Iron Mountain’s report.  At just under 12X guided AFFO, IRM is deeply undervalued relative to its growth prospects and stability.  We may look to add to this position if pricing cooperates.

Commentary may contain forward looking statements which are by definition uncertain.  We retain no obligation to update or correct forward looking statements should the available information change.  Actual results may differ materially from our forecasts or estimations.

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4/26/18 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report:  No trades this week.